Searcy Farm v. Merchants & Planters Bank

• Decision Date: 03 May 2007
• Docket Number: No. 06-892.,06-892.
• Citation: 256 S.W.3d 496,369 Ark. 487
• Court: Arkansas Supreme Court
• Parties: SEARCY FARM SUPPLY, LLC; Billy Tripp; and Billy Tripp Farms, Appellants, v. MERCHANTS & PLANTERS BANK; Lee Vaughn Clark, Sr.; Wilma Clark; United States of America Farm Services Agency; Connie Waters Boyster; Helena Chemical Company; and First Community Bank, Appellees.

256 S.W.3d 496

369 Ark. 487

SEARCY FARM SUPPLY, LLC; Billy Tripp; and Billy Tripp Farms, Appellants, v. MERCHANTS & PLANTERS BANK; Lee Vaughn Clark, Sr.; Wilma Clark; United States of America Farm Services Agency; Connie Waters Boyster; Helena Chemical Company; and First Community Bank, Appellees.

No. 06-892.

Supreme Court of Arkansas.

May 3, 2007.

Larry Killough, Jr., Searcy, AR, for appellant.

Boyce and Boyce, by: Edward Boyce, Newport, AR, for appellee Merchants & Planters Bank.

JIM GUNTER, Justice.

This appeal arises from an order of the Jackson County Circuit Court, ruling that several security interests of Appellee Merchants and Planters Bank (Bank) in crops and crop proceeds had priority over a purchase money security interest ("PMSI") of Appellants Searcy Farm Supply LLC (Searcy), Billy Tripp (Tripp), and Billy Tripp Farms. Appellants also appeal the circuit court's findings on damages, asserting that the circuit court resorted to speculation and conjecture in arriving at the total bushels actually produced from the acreage subject to the Bank's lien. We affirm the circuit court's rulings.

I. Facts

In 2001, Appellees Lee Vaughn Clark, Sr. and Wilma Clark went to the Bank to find financing for his 2001 farming operations. The Clarks entered into two separate, collateralized transactions.¹ On July 11, 2001, Mr. Clark entered into his first transaction and delivered to the Bank a promissory note for $120,000, payable on March 31, 2002, with an interest rate of eight-and-one-half percent. In order to secure the promissory note, the Clarks gave the Bank a mortgage on real estate and a security interest in crops, government payments, and specified equipment. On July 12, 2001, the Bank perfected its security interest in the property by filing the financing statements with the Jackson County Circuit Clerk. On July 16, 2001, the Bank also filed the financing statement with the Secretary of State. The Clarks failed to pay the promissory note, and the note remained in default.

The Clarks entered into a second transaction. On September 4, 2001, the Clarks for valuable consideration, made, executed, and delivered to the Bank their promissory note in the sum of $9,700, due on March 31, 2002, with an interest rate of eight percent. The Clarks gave the Bank a mortgage on real estate, as well as a security interest in crops, government payments, and specified equipment. On September 6, 2001, the Bank perfected its security interest in the property by filing the financing statements with the Jackson County Circuit Clerk, who assigned the filing number, 2001-820. The Bank filed the financing statement with the Secretary of State on September 10, 2001. The Clarks failed to pay the promissory note at maturity, and the note remained in default.

Specifically, in order to secure the promissory notes dated July 11, 2001, and September 4, 2001, the Bank took a security interest in crops to be grown on 931 acres of crop land of the Cornelius Waters Estate Lands ("Waters farm"). The Bank perfected these security interests. Clark used the proceeds from the Bank's promissory notes, dated July 11, 2001, and September 4, 2001, to finance his farming operations in 2001. However, farming was not good for Clark in 2001. He did not pay the Bank at the time of the 2001 harvest, but carried his debt over. The Bank did not finance Clark in 2002, but continued to hold a perfected security interest in crops to be grown on the 931 acres of the Waters farm.

In 2002, Clark farmed 3,300 acres. 1,941.6 acres were leased from Appellee Connie Waters Boyster, individually and as trustee of the Phillip Sue Waters Revocable Trust (collectively "Boyster"). The 1,941.6 acres included the 931 acres of the Waters farm in which the Bank continued to hold a crop lien. The rental agreement between Boyster and Clark provided that Clark agreed to pay Boyster, and the Boyster trust received government payments totaling $54,383, which were applied to Clark's rent obligation. Clark never paid the balance of the rent.

In 2002, a large portion of the Clark farming operation on the Waters farm included a corn crop ("corn project"). Clark purchased seed, chemicals, fertilizer, and farming materials for the corn project from Searcy and Tripp. Because Clark was carried on an open ticket, Searcy, in an effort to protect its account, took a security interest in Clark's 2002 crops. Clark and Searcy entered into a security agreement "for the purpose of arranging the advancement of seed and other farming supplies . . . for use by [Clark] in farming operations," and Clark gave Searcy a security interest pursuant to the Uniform Commercial Code "in all crops and other plant products grown and to be grown on [Clark's] property as well as all proceeds and products from said crops." Clark executed the financing statements, which Searcy filed with the Jackson County Circuit Clerk on March 6, 2002, March 12, 2002, May 17, 2002, and May 24, 2002. The UCC financing statement, filed on May 17, 2002, stated that it covered "the following collateral: All growing crops on the lands described . . . [.]"

In 2002, Clark again did not do well with his farming operations. Larry Burchfield, a consultant for Searcy, inspected the corn project and found the soil to be sandy and the corn to be in poor condition. Tripp confirmed Burchfield's findings. Clark harvested the corn project from the Waters farm. Searcy and Tripp hauled the corn, dried it, and sold it at a price of $2.76 per bushel. At the time of trial, Clark's balance due to Searcy was approximately $112,000 for his 2002 crop transactions.

On August 22, 2002, the Bank filed a complaint against the Clarks, First Community Bank, Searcy, and Billy Tripp d/b/a Billy Tripp Farms. The Bank requested that a restraining order issue and that a receiver be appointed to harvest the Clarks' crop. Further, the Bank sought a judgment against the Clarks for the principal indebtedness and accrued interest on the three promissory notes, attorneys' fees, court costs, and other fees. The Bank filed a first-amended complaint on September 18, 2002. An amendment to the first-amended complaint was filed by the Bank on October 16, 2002. Answers from First Community Bank, Searcy and Tripp, and the United States of America Farm Services Agency were subsequently filed.

On September 24, 2002, the circuit court ordered Searcy and Tripp to provide to the other parties a copy of the harvest accounting information from the Waters farm, to make arrangements for a third-party inspector on behalf of the Bank to view and measure the crops, to sell the crops harvested from the Waters farm, and to provide the sale information to the other parties. However, on April 21, 2003, the circuit court entered an order, finding that Searcy and Tripp were in contempt of court for violating the terms of the September 24, 2002, order. The circuit court found that Searcy and Tripp sold the crops that were the subject of the order and had in their possession the copies of the settlement sheets detailing the sale of the crops and the proceeds received from that sale. The court directed Searcy and Tripp to pay the clerk. A subsequent order, entered on May 8, 2003, found Searcy and Tripp in contempt for refusing to abide by the terms of the September 24, 2002, order for failing to pay into the court's registry and for failing to provide the settlement sheets to substantiate the proceeds of the corn sale.

A bench trial was held on November 12, 2003. On June 19, 2006, the circuit court entered an order in favor of the Bank, finding that the Clarks owed $120,000 plus interest on the July 11, 2001, note, and $9,700 plus interest on the September 4, 2001, note. Further, the circuit court made the following rulings in its order:

26. . . . With regard to time of perfection, Merchants & Planters Bank has the prior lien in said crops. Based upon [Ark.Code Ann.] § 4-9-322(a)(1) Merchants & Planters Bank is entitled to priority as the first lienholder to file and perfect its security interest. The priority of Merchants & Planters is limited to crops grown on the 931 acres identified . . . [.]

27. Billy Tripp and Searcy Farm Supply, LLC assert a priority over Merchants & Planters Bank based upon their having a purchase money security interest under [Ark.Code Ann.] § 4-9-324. Billy Tripp and Searcy Farm Supply sold seed, chemicals, fertilizer, and advice to Clark. Clark produced a crop with those products. The provisions of [Ark.Code Ann.] § 4-9-324 do not operate to give Searcy Farm Supply and Billy Tripp a lien in Clark's crops prior to that of Merchants & Planters Bank.

28. The draftsmen of Revised Article 9 to the Uniform Commercial Code wrote 9-103A and 9-324A in order to provide for a production money security interest such as Billy Tripp and Searcy Farm Supply assert. Those sections were not adopted in Arkansas.

The circuit court found that the Bank had a prior lien in Clark's crops. The circuit court also ruled that Appellee First Community Bank had a prior lien on Clark's farm equipment, which is not the subject of this appeal. Additionally, the circuit court found that Connie Waters Boyster was entitled to judgment for Clark's rent obligation. A notice of appeal was timely filed on July 5, 2006. From the June 19, 2006, order, Appellants bring their appeal.

II. Priority of the liens

For their first point on appeal, Appellants argue that the circuit court erred in ruling that the Bank was entitled to a priority over their security interests in the corn project. Specifically, Appellants contend that the circuit court erroneously interpreted Ark.Code Ann. § 4-9-322 (Repl. 2001) because, they maintain, its PMSI followed the crop, including the proceeds from the sale of the crop, and took priority over the Bank's lien. Relying upon Ark. Code Ann. § 4-9-324 (Repl.2001), Appellants assert a superpriority status because section 4-9-324 "is broad enough to encompass a `seedmoney...